What is an NFT? Simply put it is piece of digital media stored on the blockchain. This include not only images or jpegs as many like to joke, but also music, videos, in game items such as skins or tools, proof of ownership of a physical item such as a figurine or anything else that can be stored digitally, has value and is unique. NFT’s are non-fungible which means there is only one of it and it can’t be replaced with something else. To give an example, Bitcoin or one Euro is considered fungible. You replace any one Euro with another and they will have the same value. Whereas with NFT’s there is only the one with no other exact equivalent.
What is the purpose of an NFT
You have almost certain asked yourself, what is the purpose of an nft, what is the point of it. There are in fact many uses for NFT and I will try to explain and discuss some of them now.
NFT use cases
Proof of ownership
As mentioned before an NFT can be used as a proof of ownership. This can be for almost any physical item including real estate. Think of it as your unique serial key and password combination. There is only one unique combination and only one person has that unique combination.
In game assets
NFT’s can be used in video games or metaverses and can often be not only interchangeable or usable in more than one game but can also be smart. Smart NFT’s are NFT’s that can grow and improve. A character in game for example could be a NFT. You will play with it in a game and while playing it could gain experience, levels or perks. This means that this character NFT now is more powerful and thus more valuable (conceptually speaking) than it was when you initially purchased it.
Passive income source
One could use and NFT to earn cryptocurrency’s through staking. Think of it as investing normal money in a project which gains you returns for your participation. Closely related to this concept many crypto projects also give crypto currency airdrops to holders of specific NFT’s as rewards.
The love of art
Some NFT’s are simply just for the love of collecting beautiful images. Not unlike owning a painting by your favourite artist many buy and keep NFT’s purely for having it to experience whenever they want. You may have seen digital art frames in the houses of crypto enthusiasts in which they display a piece from their favorite collection. We live in a world that is becoming more and more digital, it makes sense in many ways that art has gone in this direction as more and more people spends increasing amount of time on digital devices. Not to mention the cost savings to the actual artists who now no longer need to spend money on expensive art supplies such as paints and canvas.
Securing information
The very nature of anything stored on the blockchain is something that can’t be changed once written to a block. For this reason NFT’s are good way to securely store sensitive or important information such as medical or police records and academic credentials. Once stored you can be sure that if anyone tries to change it that there will a easy to track and verify record of when or by who it was changed. Gone are the day’s where you could just carefully scribble around the F to make it look like an A.
Why do NFT’s have value
The value of an NFT is a slightly complicated thing. One could say that it’s value is derived in the same way as physical art. The credibility of the artist, the effort put into making it and the overall quality plays a huge roll. These factors however are not the only factors since, unlike traditional art, NFT’s are used in far more ways and places.
When looking at an NFT project in an attempt to value it one should consider the team behind it, what have they done before and have they been part of other successful projects. How strong is the community behind it, how many followers are their on the various social channels such as Discord and Twitter. How may interactions do these social members give on said channels. Are there any major celebrities showing interest? The social aspect of an NFT’s value is shockingly high and should always be taken in to consideration. This is not to say that a project with few member and little interactions could not in time grow into something far greater and finding these gems are often the most valuable ones if you have the nose to sniff them out.
Is there quality documentation around the team and their goals. Are their goals realistic and actionable. Unrealistic goals are often a sign that the project is just making things up. Ambition is one thing but ambition without foundation is just arrogance and often a tactic used to fool the unwary investor.
Disclaimer
Please note that I am giving you information as a gamer, crypto enthusiast and NFT collector. This should not be taken as financial advice and remember to always do your own research before investing in anything. Read the article on Crypto Slang to further your own knowledge of the terms you may hear during your adventures in crypto and the play to earn realm.